Corporate Bankruptcies Reach Four-Year Monthly Low

Investors seeking distressed companies may have to wait a little while longer as corporate bankruptcies reach a four-year monthly low, S&P Market Intelligence is reporting.

The May total of 27 was the lowest monthly figure since July 2017.

The combined figure for the first five months of the year of 210 was lower than all but two of the prior 11 years—2015 and 2014.

But experts warn there are reasons the trend might not continue despite the generally robust economy.

They pointed out government support during the pandemic may have saved companies from going into bankruptcies that were headed there as well as lenders that became more flexible.

Now with those backstops gone the going-out-of-business numbers could climb, analysts cautioned. “You can’t kick the can down the road forever,” Robert Hirsh, a partner in Lowenstein Sandler LLP’s bankruptcy and restructuring department told S&P Market Intelligence.

Another factor keeping some companies afloat is the amount of money raised from distressed funds—hedge funds and private equity funds that target struggling companies for potential investment returns—at the onset of the pandemic, Lucy Kweskin, a partner in Mayer Brown’s global restructuring practice said in an S&P report. “If you’re able to reduce the interest rate on your debt and you’re able to push out maturities and do all these kinds of things, you’re not running into bankruptcy court.”

One expert cited in the analysis, Joseph Malfitano, founder and managing member of Malfitano Partners said he is expecting some significant fallout post-Christmas in the retail space in particular.

Conversely, the healthcare sector is showing signs of strength. In the first quarter of the year, Chapter 11 and real estate bankruptcy filings remained steady, according to the newest Polsinelli-TrBK Distress Indices Report.  “The number of bankruptcy filings in the healthcare industry is now lower than we’ve seen in years,” Polsinelli Shareholder Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report, said in a prepared statement. “I expect a precipitous drop in the distressed health care index over the next few quarters unless there is very significant activity this quarter.”